TARMAC, the construction and aggregates group, is to rename its construction arm Carillion when it reveals details of its demerger tomorrow.

Carillion, a corruption of the word carillon which means a peal of bells, will be quoted separately from the heavy materials business, which is to retain the Tarmac name. It will be chaired by Sir Neville Simms, Tarmac's chief executive.

A Tarmac spokesperson said the rebranding was intended to give the construction business a clearly defined, separate identity.

The choice of name is also an attempt to distance the group from its traditional base in construction and emphasise instead its service sector strengths, particularly its Private Finance Initiative projects.

"Carillion has a big involvement in facilities management, in PFI and in rail maintenance. It's not just a construction business anymore," the company said.

The name change is the latest in a long line of unusual name changes. Others include Diageo, chosen after the merger of Guinness and Grand Metropolitan, Elementis, the renamed Harrison & Crosfield, and bus company Arriva, formerly the T Cowie Group.

Analysts said that as well as retaining the Tarmac name, the aggregates group will also take on all of the original company's pounds 317m of debt.

06190456 CARILLION WYSE HOLDINGS LIMITED_________________--
'Suppression of truth, human spirit and the holy chord of justice never works long-term. Something the suppressors never get.' David Southwell
http://aangirfan.blogspot.comhttp://aanirfan.blogspot.com
Martin Van Creveld: Let me quote General Moshe Dayan: "Israel must be like a mad dog, too dangerous to bother."
Martin Van Creveld: I'll quote Henry Kissinger: "In campaigns like this the antiterror forces lose, because they don't win, and the rebels win by not losing."

Watching the former Carillion directors explain themselves yesterday in their first public outing since the construction and outsourcing giant collapsed was toe-curling.

They blamed everyone but themselves for the mess: the Qataris for late payments, the General Election and even Brexit.

But not once did the ex-directors man up and admit that they may have been at fault. There were grovelling apologies, yes.

Take this from ex-chairman, Philip Green, who said how saddened he was by what had happened to the business: 'Words can't describe the depth of my despair.

'I am devastated by the impact the collapse has had on the pensioners, on customers, on suppliers, on staff.'

You bet he is. To be fair to Green, he did accept responsibility for what had happened. But he made it clear this was not the same as 'culpability', which is what staff and shareholders might have preferred to hear.

He also admitted there were decisions that could have been made differently. Which decisions? Continuing to pay out bonuses and dividends while the pension deficit ballooned to £900million? Did the board discuss other options?

We should be told, as learning what went so badly wrong in the governance of Carillion may help other companies – and government contractors – avoid future disasters.

The other ex-directors being grilled by MPs at the joint Commons select committee were equally opaque.

Ex-finance director Zafar Khan, who was sacked by Carillion last September, made a fool of himself when asked whether debt had come down under his stewardship.

After first saying the debt had been reduced, Khan then had to admit the opposite. This hardly inspired confidence.

No wonder the magnificent Frank Field MP accused him of being 'asleep at the wheel' as the company's debts built up, the pension deficit soared and cash flow ran out. It's a pity that MPs did not dig around more about why Khan left so abruptly.

He said he 'spooked the board' after reviewing the company's contracts, which seemed to imply he had alerted colleagues to the scale of the problems.

But ex-chief executive Keith Cochrane, brought in after last summer's profit warning, said Khan was sacked because he was not 'on top' of the finances.

These two statements do not square up. We need a better explanation of the events leading to the liquidation.

We also need to know more about relations between the pension trustees and the board, following reports that an independent adviser constantly warned Carillion's trustees that plans to plug the deficit were being made too far out, and that money was going to dividends and not pensions.

It's unsurprising that the directors gave so little away. They are terrified that any misplaced words could lead to legal action.

The scrutiny of a select committee, which continues today, is a great start but the forum does not have the legal powers to get to the bottom of the fiasco.

The next step should be watching Carillion's ex-directors, with their lawyers alongside, in a proper trial. Then the scales should drop.

The fear index

The Vix volatility index, known as Wall Street's fear gauge, soared to more than 50 points yesterday morning, the highest level since August 2015.

While it fell to 30 again after the US markets opened, analysts still fear that some of the biggest funds are under pressure to sell-off more of their volatility-linked securities.

They also fear that this in turn could spark another whopping equity sell-off across the Atlantic after what's already been the biggest rout in years, and President Trump's first bloodying: US stocks have lost $1 trillion in value in the first five days of February.

The stock market mood was still jittery in the UK with the FTSE 100 index down nearly 3 per cent.

But share prices recovered most of their worst losses, with most pundits saying a shake-out was needed to take some of the froth out of the market – that these falls are a correction rather than a crash.

The bigger question, however, is whether UK bond market bandits will follow their US peers and start selling too.

That's unlikely. Inflation is coming down here, and interest rates are still low. Hold your horses, for now.

Letter from PWC to the Chairs regarding Carillion 23 February 2018.pdf (PDF PDF 102 KB)Opens in a new window
Letter from FTI to the Chairs regarding Carillion 23 February 2018.pdf (PDF PDF 677 KB)Opens in a new window
Letter from FSB to the Chairs regarding Carillion 27 February 2018.pdf (PDF PDF 2.59 MB)Opens in a new window
Letter from EY to the Chairs regarding Carillion 23 February 2018.pdf (PDF PDF 29 KB)Opens in a new window
Inquiry: Carillion
Work and Pensions Committee
Business, Energy and Industrial Strategy Committee

Ultimately, Carillion was forced into liquidation and the Draft IBR was never presented. It appears unlikely, however, that it would have helped Carillion secure any further borrowing to add to its already massive debt. The extracts from the Review (PDF PDF 2.26 MB)Opens in a new window reveal a highly negative analysis of Carillion's position and business practices over a protracted period:

"The Group's profit warning and the quantum of the provisions taken cast significant doubt on the true historic trading position and cash generation of the business. Rather than addressing the underlying challenges facing the Group in respect of problem contracts and the strength of the balance sheet, transactions were entered into, and accounting treatments and assumptions made, to enhance the reported profitability and net debt position of the Group."
"The Group has not attempted to re-state its underlying revenues and historical profitability for the impact of the £1.1bn of provisions taken in 2017; however it is apparent that, for a number of years, the Group has been compensating for the failure to convert reported profits into cash through the incurrence of further debt (both on and off balance sheet) and the aggressive management of working capital."
"Management believe our sensitivities overstate the risks and are too harsh. Given the material funding requirement, risk items outside of the Group’s control, weak information systems and the businesses track record, we consider that our sensitivities reflect a balanced view (and not a worst case)."
"Whilst circumstances outside of the Group’s control are a factor in the operational challenges faced on certain projects, a lack of management attention to (and accountability for) addressing key issues, governance failures over the amount of risk being taken on, and a focus on short term financial benefits (net debt and cash) at the expense of long term profitability and viability are significant contributing factors."
"In addition to the £1.5bn of financial debt at Plc, the Group has amassed a further c.£250m to £300m of ‘core debt’ through it’s off balance sheet supplier financing (EPF) arrangements, which extend payment terms on the supplier base from c.30 days to c.120 days and has received significant advance payments on construction and ICT (Wipro) supplier contracts."
"In addition, the Group is further overburdened with a number of defined benefit pension scheme liabilities, which in aggregate are estimated to have a (technical provisions) funding deficit of approximately £700m (and a Section 75 liability of c.£2.8bn)."
"The historical year-end and half-year public reporting of the Group's net debt has been aggressively managed through the short term deferral of payments, acceleration of receipts and receipt of short term loans from JVs."[Joint Ventures]
"Indeed, the detailed presentation and availability of robust historical financial information is extremely weak; in particular as it relates to the historical working capital movements of the Group (which are the principal drivers of cash flow) and business unit profitability."
"This is in part due to poor accounting information systems, a lack of senior finance resource / bandwidth at Group level and weak corporate knowledge in view of extensive management changes throughout the business."
On Friday 12 January 2018, the day Carillion's board were attempting to secure an emergency £10 million loan from Government that they seemed to believe would enable them to proceed to save the company (QQ 63-70) , they paid out at least £3.1 million in consulting fees. Government refused the loan and Carillion was forced into liquidation 72 hours later. Responses from PWC, EY and FTI Consulting also being published show the amounts they were paid that day - FTI Consulting have clarified that of the total they describe, "£837k (excluding expenses and VAT) was paid on or around that date”"

The Committees are also publishing a further response from FSB, which reiterates its position on Carillion's "poor payment practices", despite the Carillion directors' responses - which the FSB heard "with some weariness" - when pressed on this in Parliament on 6 February. The FSB states: "When the Government finally presents its corporate governance regulations we want to see clear ownership of a company’s payment practices by its whole board. The blank looks and apparent lack of awareness on display to your committees will have been hard for Carillion’s small businesses to swallow." The IBR also notes Carillion's "debt has been aggressively managed through the short term deferral of payments" and that it had "amassed further core debt" through "off balance sheet supplier financing (EPF) arrangements".

Chair's comments
Rt Hon Frank Field MP, Chair of the Work and Pensions Committee, and Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Committee, said:

"There are many losers from the Carillion calamity: employees, pensioners, suppliers and the well-run businesses that pay the PPF levy. Many of those face an anxious wait to see what the consequences of the gross failings of corporate governance and accounting will be for them, their businesses and their families. Not so these omnipresent consulting giants, who can always be relied upon to emerge enrichened from any crisis. As everything collapsed around them, they were merrily cashing cheques."_________________--
'Suppression of truth, human spirit and the holy chord of justice never works long-term. Something the suppressors never get.' David Southwell
http://aangirfan.blogspot.comhttp://aanirfan.blogspot.com
Martin Van Creveld: Let me quote General Moshe Dayan: "Israel must be like a mad dog, too dangerous to bother."
Martin Van Creveld: I'll quote Henry Kissinger: "In campaigns like this the antiterror forces lose, because they don't win, and the rebels win by not losing."

Back in the last century in days of yore, individual prisons were largely autonomous in local services. The concept of outsourcing was yet to rise from the 7th circle of hell and companies like Carillion, Serco and G4S were merely a gleam in Lucifer's eye.

Each prison had a works department carrying out routine maintenance which was carried out by prisoners under supervision of usually civilian tradesmen. Prison grounds were kept immaculate by garden parties, plumbing by a works plumber accompanied by one or more prisoner assistants, even the works Electrician had a prisoner apprentice learning the trade as he helped out.

Local traders supplied supplementary services like washing machine repair with each prison's governor and security departments selecting specialist services from the surrounding area.

Prisoner's canteen purchase requirements were fulfilled by a couple of prison officers in each establishment purchasing items local cash & carries or wholesalers. Prisoners were served weekly either from a central canteen shop or a wing-based facility. Some prisons, including dispersals, even operated-a coin based- rnethod of payment known as 'Silver'. Each of these local prison shops were operated to return a small profit.

Then in 1994 a newspaper, the Sun, renowned for its factual and truthful stories, just like Boris and Trump, printed a story about Parkhurst prisoners ordering luxury items like Lobsters from the prison canteen and prison officers being humiliated by being forced to shop for these exotic items to fulfil prisoner demands.

The then Home Secretary, Michael Howard, never one to miss a sound bite opportunity, seized on the entirely fictional story and declared that prison officers should never again be so embarrassed and steps would be taken to remedy the situation.

So, began the long slippery slope into the farce of prison outsourcing and the cost to the public purse of the policy.

Outsourcing was claimed to provide significant savings and improvements in service and efficiency in delivering necessary prison services. Prison canteen services were outsourced to companies like Aramark, an American company whom, on the date of its appointment, was the U.S.'s biggest junk bond company, insolvent to the tune of a billion dollars. (Sound familiar?)

First to go in dispersal prisons were Garden parties, for it is far more economic to employ an outsourced team of workers on salaries in excess of £20,000 than a small group of low category prisoners on around £10 per week. Each of the prison work parties followed, dissolved usually with an excuse of security and companies like Carillion fell over themselves in order to obtain the lucrative contracts.

No longer could a governor deal with maintenance on a local level, now repairs and improvements were dealt with centrally, such as Carillion's Planet FM with the contractor deciding when, or if, repairs would be carried out.

Carillion's centralized system functioned perfectly. 'Here at HMP Swaleside the gymnasium showers have only been waiting for 3 years for refurbishment. ‘Golf’ wings heating has not worked since last November and its exercise yard has only had raw sewage flowing into it on two occasions in the last month. When combined with poor television reception, tripping electrics, nonfunctioning washing machines, HMP Swaleside provides a good example of how beneficial outsourcing is.

Other prisons have enjoyed the same level of service. On C wing at ·HMP Whitemoor there stands an exercise 'Stepper' which has been in need of repair for around 5 years. For the past 2 years it has borne a notice stating; 'Do not use, awaiting repair'. Repaired yet? Probably Not! Other wings enjoyed a similar level of service. When this particular outsource contractor was pressed to carry out repairs, a service engineer carefully affixed barcodes to each item requiring repair, but were actual repairs carried out? No! Duh!

Not to be outdone by a sub-contractor, Carillion submitted invoices for work they had yet to carry out. Fraud? Not if you have the right set of dodgy accountants who describe it as 'forward invoicing'.

Invoicing for work not carried out? I seem to recall the names of Serco and G4S being linked to a scandal of fake invoices for tagging. Is this the same Serco whose Chief Executive was recently complaining on the BBC that Serco were not making enough money from government contracts? On the 24th February the Sun reported that women held at Serco's Yarl's Wood immigration removal centre were on hunger strike protesting about conditions.

Moving on to G4S, currently operating 5 prisons, 2 immigration detention centres and one secure training facility. On the 15th February, Leigh Day solicitors launched an action against the government Cabinet Office in an attempt to force it to designate G4S as a 'High Risk' strategic supplier in the wake of a number of catastrophic failings. Leigh Day's instructing client, BID charity director Celia Clarke said: "Time and time again G4S's conduct in its management of government contracts has been found wanting. The mounting list of scandals must be seen as systematic failings by the government, not one-off incidents".

Returning to our dearly departed Carillion, directors of the company claimed, to government Select Committee members that it was not until December 2017 that they knew that their company was in serious trouble. Perhaps they should have asked their former Finance Director, Richard Adam, why he dumped shares worth £776,000 in March and May 2017?

On the 26th February 2018 the ‘I’ newspaper reported fresh information which had been forwarded to the 'Work & Pensions and Business Select Committees giving details of the share transactions of Carillion's former Finance Director. Richard Adam retired at the end of December 2016. On the 1st March 2017, he sold his entire existing shareholding for £534,000, including performance awards for 2013-2015 which vested on his retirement. Mr Adam then sold his long-term incentive plan awards for 2014 on the 8th May 2017, the day they vested for £242,000. In other words, Mr Adam dumped all his shares in Carillion at the first possible moment he could.

In spite of profit warnings, share dumping by their former Finance Director, tumbling share prices, in September 2017 Carillion were awarded a multi-billion pound government contract for the QS2 London to Birmingham rail link by a helpful Transport Minister, Chris Grayling.

Chris Grayling has been equally helpful to a couple of billionaires playing train sets with full size trains on the East Coast Main Line. When bosses of Virgin and Stagecoach complained they could make no money from their government contract, our Chris helpfully cancelled the contract.

Carillion went bust in January 2018, owing around half a billion pounds to small companies & sub-contractors. Their pension fund deficit is more than a billion pounds, Richard Adam regarded funding Carillion's pension scheme as a "waste of money" according to the Select Committees above.

Outsourcing of government services. What a wonderful idea, but only if you’re the bosses of an outsourcing company, not if you’re expecting a service from them, not if you’re relying on your pensions from them. Deficit? What deficit? The public will pick up the tab.

Keith Rose Tuesday 6th March 2018, HMP Swaleside

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Carillion: The failed outsourcer is the subject of a highly critical report by MPs
The Parliamentary report into the collapse of the Carillon is like a classic slasher move. It takes a sharpened axe to just about everyone connected with the contractor and hacks away with wild abandon.

Through doing so the Work & Pensions and Business, Energy & Industrial Strategy Committees draw blood from Carillon’s regulators, its accountants, the Government, and especially the company’s former bosses.

The latter are justly portrayed as the chief villains of this piece, a boardroom full of whinging Joffrey Baratheons, who presented themselves as “self-pitying victims of a maelstrom of coincidental and unforeseeable mishaps“ while presiding over a “rotten corporate culture” characterised by “recklessness hubris and greed”.

READ MORE
MPs blast Carillion bosses and accountants for part in firm's collapse
Carillion: Santander evidence to MPs highlights late payment scandal
Carillion 'ripped off' contractors in scheme to hide debts, MPs claim
The other parties only failed because they failed and headhunters would be advised to think very hard about calling any of them because the employer that dares take them on is going to be in for a very rough ride.

As for those parties, the big four accountancy firms, which I will discus in a later column today, are lambasted as “a cosy club incapable of providing the degree of independent challenge needed”.

KPMG, Ernst & Young, Deloitte and PriceatershouseCoopers all managed to draw fees from the company.

The report, meanwhile, says the committees have “no confidence” in the Financial Reporting Council or the Pensions Regulator, which are held to have been “united in their feebleness and timidity” over their approach to Carillion.

Giving the Government both barrels could have presented a problem: select committees are bipartisan bodies after all. It was solved in this case by the fact that the regime that Carillon grew up under, and operated in, has barely changed under successive administrations of varying political hues, despite the repeated criticisms laid at the door of the outsourcing industry by commentators such as myself.

As such, honourable members could attack the lot of them for “nurturing a business environment” and pursuing “a model of service delivery” which “made a collapse like Carillion’s almost inevitable”.

Preach! Preach!

But while there’s a lot of fun to be had with a well executed takedown - and this is one of the best I’ve seen since Andrew Tyrie’s Treasury Committee went about eviscerating the banking industry and its regulators - this one will only have lasting value if it pushes the government into instituting real and meaningful change.

The latter has talked much about the need for reforms to the UK’s corporate governance framework, to the oversight of pensions and to the operation of regulatory bodies. There’s rather less evidence of meaningful action and problems are still occurring where the government contracts important state services to private industry with embarrassing regulatory.

This week the Virgin Trains East Coast franchise is expected to be scrapped.

I frequently get emails and/or tweets about the way people have been treated during disability benefit assessments by Atos and the financially troubled Capita.

Staff at another Capita unit were this accused this week of using “excessive restraint” on low risk detainees on a removal flight out of Britain by HM Inspectorate of Prisons.

Interserve has been referred to the enforcement division of the Financial Conduct Authority “in connection with the Company's handling of inside information and its market disclosures” in relation to its exited energy from waste business. The group reported a £244m loss for 2017.

And so it goes on.

Ministers have two months to respond to the report. It ought to elicit something meaningful. Carillon is a gigantic mess that has spread muck all over the place. But outsourcers like it produce scandals with such regularity, will even it be enough to prompt change? I wish I could be more hopeful._________________--
'Suppression of truth, human spirit and the holy chord of justice never works long-term. Something the suppressors never get.' David Southwell
http://aangirfan.blogspot.comhttp://aanirfan.blogspot.com
Martin Van Creveld: Let me quote General Moshe Dayan: "Israel must be like a mad dog, too dangerous to bother."
Martin Van Creveld: I'll quote Henry Kissinger: "In campaigns like this the antiterror forces lose, because they don't win, and the rebels win by not losing."

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